Goldman Sachs (GS +1.3%) is planning €10B in sales of a controversial new type of bond that utilizes total return swaps, at the same time the derivatives are gaining popularity in the market due to the historic lows of credit investments.
Total return swaps allow investors to gain exposure to a portfolio of bonds or loans without actually having to come up the cash needed to own such assets. Investors pay money to a bank or other counter-party in exchange for income linked to the performance of the underlying basket of securities.
The new bond is being classed as a "covered obligation," and uses a total return swap struck with Mitsui Sumitomo Insurance on a changeable portfolio of fixed income assets.
S&P already gave the offering a AAA rating, but Fitch warns that the deal’s "structural protections and collateralization levels are too low" to warrant such a designation.